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Speaker 1: Welcome to the Fear and Greed business Interview. I'm Sean Almer.

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Speaker 1: The Reserve Bank Board is widely tipped to reduce the

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Speaker 1: official cash rate today for the first time since late

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Speaker 1: twenty twenty. If rates do drop, it'll be welcome news

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Speaker 1: for many homeowners, but how much will they actually save

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Speaker 1: and what would cut do to the broader property market.

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Speaker 1: Tim Lawlins is the head of research for Core Logic.

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Speaker 1: Tim Welcome back to Fear and.

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Speaker 2: Greed Gadey Shawn, Thanks again for the invitation.

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Speaker 1: So first up, do you think they'll cut rates this

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Speaker 1: afternoon or are you that single person out there that doesn't.

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Speaker 2: Think that I am in the February camp but qualifying

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Speaker 2: of course that's no guarantees. So yeah, I think the

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Speaker 2: IBA will cut and if they don't on their February meeting,

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Speaker 2: then almost guaranteed it's an April one, right, So I

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Speaker 2: think the timing is almost becoming irrelevant because most pundits

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Speaker 2: really seem to be pricing this in any way. It

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Speaker 2: really does seem to be the rate cutters on the cards,

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Speaker 2: and the timing is the only uncertainty.

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Speaker 1: Okay, So just in round numbers, So someone paying a

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Speaker 1: mortgage for example, be at a half million million dollars,

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Speaker 1: seven hundred thousand dollars loan. Whatever you think, what does

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Speaker 1: a twenty five basis point cut do?

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Speaker 2: Yeah, not too much so, and we need more than that.

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Speaker 1: More than that, we need excitement here.

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Speaker 2: Yeah, it's it's a start. Put it that way, And

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Speaker 2: I think I think the biggest benefit from a rate

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Speaker 2: cut's really going to be about the sentiment injection we

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Speaker 2: get from it. But you're serious in numbers. So if

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Speaker 2: you're on a seven hundred and fifty thousand dollar loan

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Speaker 2: and your own owner occupier, you're probably on a mortgage

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Speaker 2: rate around about six point three three percent. Twenty five

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Speaker 2: basis point cut means you get down to about six

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Speaker 2: point oh wait, Almo's guarantee the banks will pass it on,

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Speaker 2: which means you're saving around about one hundred and twenty

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Speaker 2: two dollars a month. So to put that into the

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Speaker 2: broader numbers, at the moment, you're probably paying somewhere like

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Speaker 2: about four thousand, six hundred and fifty seven dollars a

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Speaker 2: month on your mortgage. A rate cut means just paying

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Speaker 2: four five hundred and thirty five a month, So it's

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Speaker 2: small Bickie's and the grand scheme of things. But of course,

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Speaker 2: you know, one hundred and twenty one bucks a month,

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Speaker 2: that's okay. It's better than going up or staying flat.

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Speaker 2: Like I said, I think the biggest benefit from a

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Speaker 2: rate cut is going to be just an improvement and sentiment,

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Speaker 2: And I think we've already started to see consumers feeling

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Speaker 2: a little bit more confident about their finances amid an

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Speaker 2: expectation that the rates are coming down.

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Speaker 1: How many rate cuts do you expect to see this cycle.

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Speaker 2: There's a lot of people who are much better place

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Speaker 2: to answer that than me, for sure, but I'd be

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Speaker 2: expecting two to three rate cuts this year, so probably

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Speaker 2: fifty to seventy five basis points. I think overall, this

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Speaker 2: is going to be quite a cautious and gradual cutting

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Speaker 2: cycle from relatively high levels. If you think about the

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Speaker 2: ten year average for the cash rate pre pandemic, it

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Speaker 2: was about two point five to five percent, So we've

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Speaker 2: got a long way to go before we're getting anywhere

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Speaker 2: near that pre pandemic average.

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Speaker 1: Where's neutral for interest rates? Where do we get to

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Speaker 1: where we think that it's not really adding much to

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Speaker 1: the economy and not taking much away. I know that

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Speaker 1: yesterday the boss have been and go on Adelaide Bank

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Speaker 1: kind of said, well, for three point five zero cash rate,

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Speaker 1: that's about eighty basis points below where we are now,

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Speaker 1: is about neutral? Does that sound right?

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Speaker 2: That sounds about right to me. Eighty to one hundred

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Speaker 2: basis points down I think would certainly add a bit

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Speaker 2: of an injection to the economy and to activity without

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Speaker 2: overstimulating the market. And I think, I mean, even if

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Speaker 2: we did see rates coming down a little bit more

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Speaker 2: aggressively that what I'm expecting, I kind of feel like

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Speaker 2: the housing market potentially would be a little bit insulated

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Speaker 2: from that because I think if the IRBA and APPRAA

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Speaker 2: started to see households becoming a little bit more exuberant

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Speaker 2: and taking on debt, that's where they could start to

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Speaker 2: lock down crudential policies as well. So credit policy is

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Speaker 2: completely different from cash rates settings. Like we saw through

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Speaker 2: the previous periods of Macro Podential that was December to

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Speaker 2: twenty fourteen and March of seventeen, they had a really

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Speaker 2: clear dampening effect on the housing market. So that's probably

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Speaker 2: another one to wch would be what happens with credit policy.

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Speaker 2: There's still some speculation we could see the three percentage

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Speaker 2: point buffer applied by APRA reduced back to two point

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Speaker 2: five maybe, but I'm a bit skeptical of that. I

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Speaker 2: think that they'll probably be acting quite conservative and just

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Speaker 2: trying to keep a lid on household debt levels where

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Speaker 2: they can.

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Speaker 1: We're a getting too technical on this because they need

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Speaker 1: to go to a break in a moment. Do you

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Speaker 1: think APRA would get tougher in potential standards that actually

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Speaker 1: make it more difficult for people to get.

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Speaker 2: Along only if we saw household debt levels becoming higher

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Speaker 2: than what they currently are. So we are seeing household

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Speaker 2: debt levels have come back a little bit. They're back

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Speaker 2: to roughly about twenty eighteen levels, but that's still actually

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Speaker 2: really high. You know, we're looking at household debt levels

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Speaker 2: to income ratios around about one hundred and eighty percent, right,

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Speaker 2: So it's we still have a quite a heavily indebted

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Speaker 2: household sector, and most of that debt is housing related debt.

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Speaker 2: So I don't think we'd see APRI tightening things up

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Speaker 2: unless we started to see household debt levels becoming higher

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Speaker 2: than what they what we're seeing already.

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Speaker 1: Okay, I want to talk about how the market's tracking,

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Speaker 1: auction clearance rates, all sorts of things, but we'll take

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Speaker 1: a break first. We'll be back in a moment. I'm

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Speaker 1: talking to Tim Lawless from Core Logic. Let's get to

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Speaker 1: house prices. House twenty twenty five started.

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Speaker 2: Tim relatively soft, Sean.

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Speaker 1: So, yeah, last week, grumpy, this whole interview we've started

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Speaker 1: about the interest rates, and now you're telling us the

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Speaker 1: house prices are soft.

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Speaker 2: Go on, Well, it's probably a good thing for a

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Speaker 2: lot of people that have been looking to get into

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Speaker 2: the market. You know, we've come out of this roughly

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Speaker 2: fourteen and a half percent cycle of growth over the

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Speaker 2: past roughly two years, and now we've seen about three

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Speaker 2: months where housing values have drifted a little bit lower.

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Speaker 2: They're down like zero point three percent from their peak

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Speaker 2: back in October. So I wouldn't say the market's crashing,

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Speaker 2: but we have seen some markets falling a little bit

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Speaker 2: more steadily. Melbourne, for example, we're seeing values about seven

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Speaker 2: percent down from the peak back in twenty twenty two.

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Speaker 2: Hobart's down a bit more than twelve percent. Sydney's now

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Speaker 2: seeing falling values from month to month as well. Down

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Speaker 2: nearly two percent, and we're seeing momentum coming out of

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Speaker 2: the mid sized capitals as well. So the very strong

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Speaker 2: markets of Perth, Adelaide, Brisbane still rising pretty quickly, but

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Speaker 2: nowhere near as rapidly as they were say six months ago.

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Speaker 1: Out of these markets work. We always talk about house

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Speaker 1: prices always going up, and those of us that live

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Speaker 1: in one of the very big cities we talk about

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Speaker 1: the affordability for kids and all that sort of thing.

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Speaker 1: But do markets go up and then go down but

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Speaker 1: not fall as much, and then go up further then

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Speaker 1: go down a little bit or do they mean that

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Speaker 1: scene's Melbourne for example, whereas Sydney doesn't ever seem excluding COVID,

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Speaker 1: doesn't ever seem to fall that much.

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Speaker 2: Well, no, there's definitely a period of cyclical downs. I

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Speaker 2: mean Sydney is a good example where just think back

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Speaker 2: between the middle of twenty seventeen and the middle of

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Speaker 2: twenty nineteen we saw Sydney home values fall a little

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Speaker 2: bit more than ten percent and that was after a

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Speaker 2: pretty decent growth cycle. And again that was remember amid

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Speaker 2: the Royal Commission and credit tightening events and of course

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Speaker 2: affordability challenges as well. Or a market like Perth where

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Speaker 2: we saw housing values fall nearly twenty percent after the

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Speaker 2: mining boom. So definitely we do see housing prices come down,

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Speaker 2: but I think your analogy of their rise and then

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Speaker 2: they fall a little bit, then their rise again is

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Speaker 2: very true. You know, generally throughout the cycles, we do

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Speaker 2: see overall growth over a long period of time. You

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Speaker 2: look at the of the last five years, we've seen

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Speaker 2: housing values across Australia up around thirty to thirty five percent,

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Speaker 2: some markets through up more than seventy percent. So yeah,

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Speaker 2: I think we've come out of a very strong period

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Speaker 2: of growth. But there's other examples of Melbourne or Hobart

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Speaker 2: where absolutely, even with very low interest rates during the pandemic,

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Speaker 2: those markets, particularly Melbourne, we're still generally quite weak.

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Speaker 1: Where are we on affordability at the moment.

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Speaker 2: Again, it's pretty diverse. If you look at the national numbers,

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Speaker 2: are affordability metrics are up to September at the moment

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Speaker 2: because the income data takes a bit of a lag

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Speaker 2: to come through, But we're at record highs for pretty

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Speaker 2: much every measure of affordability. So there's a lot of

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Speaker 2: different ways to measure affordability. You can look at things

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Speaker 2: like joining values relative to household incomes, or how much

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Speaker 2: income are you paying towards mortgage or payments, or how

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Speaker 2: long does it take to save for a deposit, how

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Speaker 2: much income you're dedicating to rent, each of those measures

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Speaker 2: where it record highs nationally, but some markets had improved

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Speaker 2: again Melbourne being quite weak, or Hobart. We've actually seen

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Speaker 2: Melbourne really moving through the Affordability League tables in all

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Speaker 2: the right ways. It's now the most affordable market after

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Speaker 2: Darwin and Hobart when you're just for incomes, whereas a

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Speaker 2: market like Brisbane has now got the second highest median

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Speaker 2: value and it's really marched up through the tables. Or

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Speaker 2: Adelaid is the second most unaffordable city when you adjust

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Speaker 2: for income, it's just after Sydney. So affordability is really

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Speaker 2: stretched in some markets, and I think Sydney's is just

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Speaker 2: a It is a little bit hard to understand how

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Speaker 2: we saw values rise so much in Sydney when you

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Speaker 2: have drunting value to income ratios that are up around

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Speaker 2: ten to twelve times, So it is a little bit

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Speaker 2: difficult to understand, and we generally would attribute that strength

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Speaker 2: in conditions when you have such unaffordable stock simply back

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Speaker 2: to very low supply levels, which would still look to

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Speaker 2: be broken.

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Speaker 1: Okay, before we go a moment of voyeur ism. A

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Speaker 1: Melbourne properly last week reportedly one hundred and fifty million,

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Speaker 1: but that is reportedly. It's certainly sold for a lot

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Speaker 1: of money, kunak in two rac Did that mean anything

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Speaker 1: or was it just us enjoying rich people buy big houses.

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Speaker 2: Yeah, it's certainly interesting and it hit the headlines. Everyone's interested,

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Speaker 2: and that's what a sale. But it doesn't mean anything

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Speaker 2: to normal people like you and I so I think

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Speaker 2: when you look at really you unique high end properties

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Speaker 2: like that, they're very niche that it doesn't really tell

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Speaker 2: us anything about what the market's doing, and they're almost

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Speaker 2: impossible to estimate what the value might be for when

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Speaker 2: it does sell. Interesting to read and everyone sort of

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Speaker 2: shakes their heads at the height of that sale, but yeah,

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Speaker 2: it doesn't really mean anything for the market.

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Speaker 1: Dim Thank you for joining us today on Fear and Greed.

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Speaker 1: Many thanks Stim Lawless, head of research at core Logic.

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Speaker 1: This is the Fear and Green Business Interview. Join us

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Speaker 1: every morning for the full episode of Fear and Greed.

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Speaker 1: Daily Business News for people who make their own decisions.

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Speaker 1: I'm Sean Almer. Enjoy your day.